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AOP Blog

Handling ‘the Present Situation’

By January 13, 2021No Comments

We’ve all had so much to deal with over the last year. In most cases, people just refer to ‘the present situation’ to encompass all of it – hinting at the circumstances without getting too specific. And that made me think; the interesting thing about the question of how to handle ‘the present situation’ is that you can define it however you like and the answer does not usually change. 

Today, ‘the present situation’ is the COVID-19 pandemic and the continuing economic fallout from the resulting shutdowns. Back in 2008-2009 it might have been the recession. In 2011 it was probably the tsunami in Japan that hit the automotive and consumer electronics supply chains. In 2018 it was the labor strike at the port of Long Beach in California that left shipping containers stuck on ships (resulting in a very STINKY’ situation).

Resiliency isn’t easy to achieve, but it is a critical component of competitive advantage and global supply chains will always be unpredictable. So how can we make sure our global supply chains are less susceptible to disruption?

My answer is twofold:

Keep your ear to the ground in all ways and at all times. 

Use technology for automated news monitoring, read everything, and stay in constant contact with your suppliers. This recommendation includes push as well as pull information collection. You can’t sit back and wait for the bad news to hit you. You have to identify your risks, give conscious thought to the early indicators that something has gone wrong, and reach out to people who are closer to the site or source of the disruption and ask them how things are going where they are. More people watching means you have a network of observation, which can be a strong defense against a single point of failure.

Challenge your assumptions and optimization constraints

When procurement puts a contract in place or designs a supply chain, we have to do it in advance. This requires us to make assumptions about demand, weather conditions, raw material prices, labor availability, etc. If you change one piece of the puzzle even a tiny bit, the recommendation may change as well. Always remember what those assumptions are and go back and make them earn their keep. Assumptions and constraints are particularly involved in anything that we have streamlined or made more efficient. If you have lean manufacturing, just in time inventory management, supplier rationalization, or supply chains that are extended in terms of tiers of suppliers or geographical distance, you’ve raised the pressure on yourself in exchange for cost savings, less investment in inventory, or faster consumer response. None of those choices is bad or wrong, but you have to be particularly aware of the optimization assumptions and constraints you made – and their expiration dates – when you put the current plan in place. 

My closing thought about supply chain resilience and ‘the present situation’ is that the wrong answer is always to panic and overreact. Were you affected by shutdowns in China? Perhaps, a lot of companies were. But making the knee jerk decision to pull all sourcing out and move it to another country is definitely the wrong choice. I was recently speaking to a CPO who told me his company was affected by changes in China, but he waited and they came back online much faster than other parts of the world. I’ve heard the same thing from many others. Always get clarity before you act, ensure your decisions are based on fact and data rather than emotion and intuition, and go for a diversified strategy, not a blanket one, when you can. 

Rather than trying to run from risk, assume it will always exist and build optionality into your supply chains. That is the key to resilience.